Labor Market Outcomes of Health Shocks and Dependent Coverage Expansions

by James R. Burgdorf

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Abstract

The traditional bundling of health insurance with employment in the United States may distort workers' labor market choices by encouraging full-time wage and salary employment relative to part-time work, self-employment, and not working. However, disentangling the effects of employer-provided health insurance on labor market outcomes is a challenging empirical issue. To overcome this issue, the author conducts three studies which exploit three sources of variation in individual valuation of employer-provided group health care. The first study considers the differential impact of health shocks on self-employed workers and wage and salary workers using panel data from the Health and Retirement Study. He finds that among older workers in perfect health, health shocks have a larger effect on exits from self-employment than on exits from wage and salary work, implying that extending group coverage to small firm owners may reduce the number of health-related firm failures. The second study uses data from the Current Population Survey's Annual Social and Economic Supplement (ASEC), and was originally intended to examine the effect of state-level dependent coverage expansions on employment outcomes for young adults. Instead, he uncovers new evidence that these reforms have had a more limited impact on young adults' insurance rates than indicated by previous research. The third study again uses ASEC data, but considers the effects of the Affordable Care Act's federal-level dependent coverage expansion on young adults' labor market outcomes. He finds that these reforms did effectively increase the reported holding of non-spousal dependent coverage, and initial results indicate a significant association with reduced labor force participation. However, further investigation reveals that the target population's relative withdrawal from the labor force began prior to the implementation of the insurance reform, and is likely driven by the economic recession.

This document was submitted as a dissertation in June 2013 in partial fulfillment of the requirements of the doctoral degree in public policy analysis at the Pardee RAND Graduate School. The faculty committee that supervised and approved the dissertation consisted of Rosalie Pacula, (Chair), Mireille Jacobson, Todd Gilmer, and David Neumark.

This report is part of the RAND Corporation dissertation series. PRGS dissertations are produced by graduate fellows of the Pardee RAND Graduate School, the world's leading producer of Ph.D.'s in policy analysis. The dissertations are supervised, reviewed, and approved by a PRGS faculty committee overseeing each dissertation.

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